An often misguided premise I see on social media is that lower mortgage rates are doing nothing for housing demand. That’s ok — very few people are looking at the data without an agenda. However, the point of this tracker is to show you evidence that lower rates have already changed housing data. So, let’s review the data together.
Purchase application data
First, purchase apps is the fastest way to look for positive or negative data at higher or lower mortgage rates. Also, purchase apps are very seasonal. The volume curve comes at the start of the year and traditionally, after May, total volumes fall — this happens every year. So, we need to look at the internals of the data, which look out 30-90 days before it hits the sales data.
This is what weekly purchase application data looked like with rising rates, starting from the latter part of January:
- 14 negative prints
- 2 flat prints
- 2 positive prints
As you can see, this was a highly negative year with the weekly application data. Before rates started to rise we had about eight weeks of positive trending purchase apps and then they zapped the data in a very negative curve.
This is what weekly purchase application data looks like since mortgage rates started to fall in Mid-June:
- 9 Positive prints
- 5 Negative prints
So, we went from terrible demand at the start of the year when mortgage rates rose —working from an extreme low level — to now having almost double the positive weekly numbers versus negative prints. This only happened because rates fell. If rates had kept going higher, that negative data would have stayed intact the entire year.
Now, new home sales have benefited more from lower rates than the existing home sales market: this trend in that data started over two months ago. This article is meant to help you understand how to read the new home sales data correctly, as that forward-looking tracking data is a bit different than the existing home sales market. More detail on that is here.
10-year yield and mortgage rates
My 2024 forecast included:
- A range for mortgage rates between 7.25%-5.75%
- A range for the 10-year yield between 4.25%-3.21%
Mortgage rates are at their lows for 2024 and are not that far from the very bottom forecast I had for 2024 at 5.75%. The 10-year yield has shown the ability to break through that pesky key level at 3.80% with weaker labor data, but what now?
For rates to go even lower, we need more softness in the economic data or a more dovish Federal Reserve meeting in a few days. The third variable that can help more rates go lower without too much help from the 10-year yield can be mortgage spreads.
Mortgage spreads
One way for mortgage rates to drop to the low level for my 2024 forecast at 5.75% or lower is for the mortgage spreads to get better, and we have a lot of room here to improve. Outside of that, you need weaker economic or labor data. Or the Fed might get dovish and do a real pivot, not just a baby pivot.
If we took the worst levels of the spreads from 2023 and incorporated those today, mortgage rates would be 0.58% higher right now. While we are far from being average with the spreads, the fact that we have seen this improvement is a plus this year.
Weekly housing inventory data
Higher rates lead to more inventory. My model has been simple for the last two years; as long as mortgage rates stay above 7.25%, inventory should grow in a normal range of 11,000-17,000 per week. This happened six times this year where it didn’t happened even once last year. Even though inventory grew faster and longer with higher mortgage rates last year, I never got the growth I hoped for.
As mortgage rates have fallen, I haven’t been able to hit my model once, which isn’t a surprise, but after back-to-back weeks of a tiny decline in inventory, we did get a rebound last week of 10,014.
- Weekly inventory change (Sept. 6-Sept. 13): Inventory rose from 703,646 to 713,660
- The same week last year (Sept. 7-Sept. 14): Inventory rose from 509,892 to 519,458
- The all-time inventory bottom was in 2022 at 240,497
- The yearly inventory peak for 2024 is 713,660
- For some context, active listings for this week in 2015 were 1,201,529
New listings data
Another positive data line this year is that new listings data grew from the lowest levels ever recorded in history in 2023. Since most sellers are buyers, this data must return to normal before seeing real, long-lasting sales growth. However, I missed my 2024 forecast of at least 80,000 new listings per week this year during the seasonal peak months by roughly 5,000. However, even with that missed call, the growth we saw in new listings data was a big positive in my eyes.
- 2024: 65,162
- 2023: 61,162
- 2022: 63,034
Price-cut percentage
In an average year, one-third of all homes take a price cut — this is standard housing activity. Rising mortgage rates last year and this year have created a growing level of price cuts, especially with inventory rising. This data line has slowed its price as rates have fallen. In my 2024 price forecast, I was on the shallow end for price growth, and I would have been too low if mortgage rates hadn’t risen earlier in the year to slow down mortgage demand.
A few months ago, on the HousingWire Daily podcast, I discussed that the price-growth data would cool down in the year’s second half. Here are the price-cut percentages for last week over the previous few years:
- 2024: 40.1%
- 2023: 37%
- 2022: 41%
Weekly pending sales
Below is the Altos Research weekly pending contract data to show real-time demand. We are seeing the seasonal decline in the data line but have some year-over-year growth. Remember, last year, mortgage rates started to move toward 8%, so let’s take the better year-over-year data with some context. In fact, I believe some people will overstate the year-over-year in the future.
- 2024: 357,254
- 2023: 345,137
- 2022: 390,335
The week ahead: Fed week and key housing data
Of course, we are heading into the big Fed week. Will they do a 0.25% or 0.50% cut? Monday’s podcast discusses this, and we can’t wait to publish it! We also have the builder’s confidence data, which might show the first positive headline print in a while, and housing starts data. We also have retail sales, bond auctions, and Fed president speeches. Buckle up!
